Natural Gas: Roles of Federal and State Regulators in Overseeing Prices: GAO-06-968

Wells, Jim
October 2006
GAO Reports;10/17/2006, p1
Government Document
Following Hurricanes Katrina and Rita, natural gas prices spiked to more than $15 per thousand cubic feet, nearly seven times higher than in the late 1990s. As a result, policymakers have increasingly focused on better understanding how prices are overseen. The prices that consumers pay for natural gas are composed of (1) the commodity price, (2) the cost of interstate transportation, and (3) local distribution charges. Oversight of these components belongs to the federal government, through the Federal Energy Regulatory Commission (FERC), and the states. In 1993, federal price controls over commodity prices were removed, but FERC is still charged with ensuring that prices are fair. Recently, the Energy Policy Act of 2005 (EPAct 2005) broadened FERC's authority. GAO agreed to (1) analyze FERC's role overseeing natural gas prices, (2) summarize FERC's progress in implementing EPAct 2005, and (3) examine states' role in overseeing natural gas prices. In preparing this report, GAO met with officials from 10 states that regulate gas in different ways and analyzed relevant laws and documentation. Since natural gas commodity prices were deregulated in 1993, FERC's role in ensuring that commodity prices are determined competitively and are free from manipulation has been limited to (1) indirectly monitoring commodity markets to identify and punish market manipulation and (2) supporting competition in those markets. FERC faces challenges ensuring prices are fair, however, because staff cannot monitor all of the potentially millions of transactions and because it is difficult to identify market manipulation. FERC's oversight of commodity markets has risen in importance recently because the commodity price amounted to nearly 60 percent of the total consumer price in 2005 compared with about 30 percent in 1993. FERC also directly approves interstate transportation prices. FERC has completed action on four of the six new tasks identified by EPAct 2005 related to natural gas. FERC officials said that EPAct 2005 has achieved tangible results. For example, following FERC's issuance of a policy statement on enforcement in October 2005, some industry members have self-reported instances of noncompliance with FERC-approved rules in an effort to gain consideration for a lesser penalty. States directly oversee prices for local distribution of natural gas and have a limited role approving commodity and interstate transportation prices. States directly approve utilities' charges for local delivery of natural gas, but this represented only about 30 percent of the consumer price in 2005. While states can deny gas utilities from passing on the cost of the gas commodity to consumers, state officials told us this rarely occurs. State officials rely on FERC to ensure that commodity prices are fair, but some said they are unaware of FERC's oversight efforts. FERC officials agree that expanding the information they provide to stakeholders would improve...


Related Articles


    The article focuses on the response of the U.S. federal government to Hurricanes Katrina and Rita in 2005. It shows how the hurricanes created a potential for natural gas crisis extendring through one winter heating season at most. It describes how the Congress gave the U.S. Federal Energy...

  • Pipelines Must Report Damage from Hurricanes, Other Disasters.  // American Gas;Nov2006, Vol. 88 Issue 9, p28 

    The article reports on the final rule laid down by the Federal Energy Regulatory Commission (FERC) in the U.S. regarding damages on pipelines caused by natural disasters. Under a final rule issued by FERC, natural gas companies must report damage to their facilities and report service...

  • Hurricane Katrina: Improving Federal Contracting Practices in Disaster Recovery Operations: GAO-06-714T. Woods, William T. // GAO Reports;5/4/2006, p1 

    The devastation experienced throughout the Gulf Coast region in the wake of Hurricanes Katrina and Rita has called into question the government's ability to effectively respond to such disasters. The government needs to understand what went right and what went wrong, and to apply these lessons...

  • 2010 Census: Preparations for the 2010 Census Underway, but Continued Oversight and Risk Management Are Critical: GAO-07-1106T.  // GAO Reports;7/18/2007, p1 

    The decennial census is a Constitutionally-mandated activity that produces critical data used to apportion congressional seats, redraw congressional districts, and allocate billions of dollars in federal assistance. The Census Bureau (Bureau) estimates the 2010 Census will cost $11.3 billion,...

  • GOVERNMENT GUIDELINES. Barlas, Stephen // Pipeline & Gas Journal;Apr2003, Vol. 230 Issue 4, p6 

    Focuses on issues related to oil and gas laws in the U.S. Concern for the influence of rising gas prices on the development of energy bills; Constraints in the production of energy in federal lands; Finalization of the rule regarding the critical energy infrastructure information of the Federal...

  • Profits rise despite diesel surge.  // Commercial Carrier Journal;Dec2005, Vol. 162 Issue 12, p12 

    The article reports on an increase in profit of publicly traded trucking companies in the U.S. in the third quarter of 2005 despite growth and volatility in diesel prices. The growth was close to the profit posted in the second quarter of the year. Hurricanes Katrina and Rita have contributed to...

  • Lower fuel prices in near term doubtful. Laws, Forrest // Southwest Farm Press;10/20/2005, Vol. 32 Issue 20, p1 

    Focuses on the uncertainty of easing oil prices back from current post-Hurricane Katrina/Rita levels. Percentage of damage caused by Hurricane Katrina to U.S. oil refining capacity; Role of China and India in the tight, demand-driven world energy markets; Determinants of the direction of U.S....

  • Fuel Costs Could Hurt Holiday. Clark, Evan // WWD: Women's Wear Daily;10/17/2005, Vol. 190 Issue 82, p3 

    Reports on the possible effects of the increasing fuel prices on the holiday season sales in the clothing trade in the U.S. in 2005. Increase in prices of goods and services due to Hurricanes Katrina and Rita; Views of John Lonski, team managing director of the economic group of Moody's...

  • Hurricanes Katrina and Rita: Federal Actions Could Enhance Preparedness of Certain State-Administered Federal Support Programs: GAO-07-219. Bovbjerg, Barbara D. // GAO Reports;2/7/2007, p1 

    Hurricanes Katrina and Rita displaced over 1 million people and affected some of the poorest areas of the country. Many of those affected by the hurricanes received federal assistance from the Old Age, Survivors, and Disability Insurance (Social Security), Supplemental Security Income (SSI),...


Read the Article

Other Topics